State of entrepreneurship in South Africa

The number of youth entrepreneurs in South Africa may have dropped, but it is notable that more than 50% of entrepreneurs are youth. Also notable is the rise in the number of female entrepreneurs.

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The gap between male and female entrepreneurs is closing, the Seed Academy’s Real State of Entrepreneurship Survey 2017 has found. Female representation in the survey shifted from 35% to 31% to 47% in the years 2015, 2016 and 2017 respectively. (Image: Brand South Africa)

Brand South Africa reporter
More than half of the South Africans who run their own businesses are youth, according to the Real State of Entrepreneurship Survey 2017, undertaken by the Seed Academy. More than 1,200 entrepreneurs took part in the research project.

Its findings also showed that the gap between male and female entrepreneurs was closing, with the latter now making up 47% of entrepreneurs.

The background

This was the third consecutive year that the survey was undertaken. Donna Rachelson, chief executive officer of Seed Engine, which incorporates the Seed Academy and the WDB Seed Fund, said: “[The survey is undertaken] in an effort to stimulate real conversations in the ecosystem about how we can better support entrepreneurs to build successful, sustainable businesses and, most importantly, to hear from entrepreneurs directly about what support they need.”

Rachelson said an area for concern was the decrease in the number of youth entrepreneurs, a statistic that is supported by the GEM 2016/17 report. “Entrepreneurship is often seen as a solution for youth unemployment.

“We have seen a decline in youth entrepreneurs from 63% to 57% (from 2015 to 2016) and the GEM reports a 40% decrease in youth entrepreneurship.”

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A total of 57% of the respondents were between the ages of 16 and 34. (Infographic by Seed Academy)

Among other things, the survey found:

  • 42% of respondents started businesses because they identified an opportunity;
  • 87% of respondents lived in Gauteng, KwaZulu-Natal and the Western Cape;
  • 5% of respondents lived in rural areas;
  • The Bureau for Economic Research (BER) reported that 24% of formal businesses in the country operated outside those three provinces;
  • 98% of respondents owned for-profit businesses and 18% of these were social enterprises; 2% owned non-profit businesses – for profit businesses are motivated by creating value for the business owner while nonprofit organisations are motivated to bring social change to communities;
  • 37% of businesses had no employees, while 51% of businesses that had staff employed between one and four people; and
  • Type of customer: 38% business to business; 47% business to consumers; 12% business to government; 36% all of the above.
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The majority of the respondents said they started their business because they saw seen an opportunity. (Infographic by Seed Academy)

Investment aspect

Entrepreneurs were asked how much money it took to fund their businesses. A large majority (78%) needed less than R100,000 to start their businesses; only 5% required more than R1-million to start operating.

A total of 95% of businesses were funded by owners and their friends and family. Only 5% acquired funds from more formal sources of funding such as angel funding, bank loans and development finance institutions such as the Industrial Development Corporation.

More positive findings

A total of 78% of entrepreneurs indicated that they had engaged in entrepreneur training programmes or were part of an incubator at some point. Corporate enterprise and supplier development programmes featured too, with 14% of respondents having been part of these.

Almost half – 45% – reported that they had previously failed in business, which showed their commitment to the entrepreneurial journey.

Challenges

Of the 52% of businesses that indicated they were pre-revenue, just more than 60% were older than six months, highlighting the challenge that these businesses faced with gaining traction.

The top five challenges entrepreneurs faced were:

  • Finding clients or customers (47%);
  • Inability to raise funds (43%);
  • Lack of guidance (31%);
  • Wearing too many hats (30%); and
  • Slow or lost sales (21%).

Options available

Meanwhile, Tafadzwa Madavo, the chief operating officer of Riversands Incubation Hub, said too often entrepreneurs told him that a lack of funding was holding them back. “Yes, funding is critically important, but it’s not the silver bullet many believe it to be.

“Apart from financial support, there are so many initiatives, including many free ones, to support entrepreneurs start and grow a business through mentorship, training and access to market opportunities,” he said. “If you can’t secure funding, consider what other support will make a difference.”

Madavo was speaking in light of the FundEx conference held on 17 August 2017, hosted by his incubation hub. This one-day event aims to highlight funding opportunities available from banks, government funders and alternative funding platforms.

“Access to finance remains a major frustration and growth inhibitor for small business. Yet there is funding available,” said Jenny Retief, Riversands CEO. “While Riversands does not provide funding whatsoever, we believe that we can play a role in bringing together many players in the funding space.”

At the conference, for example, there was a funders’ lounge where entrepreneurs can book one-on-one consultations with a funding expert.

state of entrepreneurship Tafadzwa Madavo
Tafadzwa Madavo is the chief operating officer of Riversands Incubation Hub. (Image supplied)

The truth about funding

Madavo addressed several fundamental truths for entrepreneurs who were seeking funding.

Besides the funding matchmaker Finfind, which had more than 200 funders in South Africa, there was a concerted drive to fund small business in the private and public sectors.

“Even if you are not a match for more traditional vehicles such as commercial finance, there are other funding opportunities thanks to fintech innovations, such as Rainfin or Lulalend, and new types of funding models,” said Madavo.

“This doesn’t mean that your business will automatically secure funding; there is still quite a bit of work involved in preparing a business to become funding-ready. For example, making sure that you separate your business from your personal bank account or finding the right accountant to produce regular books. Getting funding ready is a process; entrepreneurs do need guidance to go through the steps.”

There were many examples of companies that did not have money in the bank when they started, he said. “If you want to be an entrepreneur, the right time to start is now. This can mean gaining work experience in an industry that interests you, putting aside hours at night to work on an idea or stashing some start-up capital.”

He quoted a finding by management researchers Joseph Raffiee and Jie Feng: “Entrepreneurs who keep their day jobs when starting a business have 33% lower odds of failure than those who quit to start.” The study tracked more than 5,000 American entrepreneurs.

Sources: Seed Engine, Riversands Incubation Hub and FundEx.

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